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Looming Interest Rate Cuts Favour Non-Bank Alternatives

Updated: Nov 28, 2019

With the looming threat of a potential cut in official interest rates it is no surprise Australian investors are looking for alternatives to keep ahead of inflation.

The challenges facing the Australian property market also mean more investors are flocking to investment options that provide a reliable home for their idle cash.

Mayfair 101’s Managing Director, James Mawhinney says that the options provided by banks are suited to those who are happy leaving their money idle. However, those seeking better returns are now shifting away from the traditional options to keep pace with inflation and maintain their lifestyle during periods of low interest rates.

“Investors need to make a choice of whether they want to leave their money idle and risk falling behind inflation, or activate their money in order to stay ahead.”

Australian Banks have inherently sourced capital from deposit holders to boost their balance sheets to finance their investment activities, a substantial portion of which has been for the issuance of home loans. However, with the property market tightening and an interest rate cut likely, the motivation of banks to pay deposit holders attractive rates is almost minimal.

“The banking system is structured that authorised deposit-taking institutions have no compelling incentive to pay higher returns to deposit holders, as they have low-cost alternative sources of capital. To pay higher rates simply erodes their profit margins, leading to unhappy shareholders, which is the last thing the banks and their shareholders want.”

“We have been seeing this shift away from banks first-hand for the last few years. Deposit holders are moving away from the banks to non-bank alternatives citing lack of returns and therefore lack of income. They are aware of the different risk profile associated with non-bank alternatives, but are comfortable making the switch because they need to sustain or improve their investment income.” Since Mayfair 101 launched IPO Wealth in early 2017 the company has attracted over $100 million in investment, most of which has been in the past 9 months, demonstrating the tidal movement in favour of non-bank alternatives.

“There is a real danger of an interest rate cut, which would spell disaster for many retirees who rely on income from their term deposits and similar income-producing products. We consider a rate cut to be inevitable as it is one of the few levers available to influence economic conditions at scale, and it is only a matter of time before the economy will need stimulation by the RBA.”

Mayfair 101 attributes the group’s ability to provide investors with attractive non-bank alternatives to its diversified investment strategy that is largely insulated from economic uncertainty and Australian property.

“Our group provides Australian investors a conduit through which they can gain exposure to asset classes that are clearly delineated from those that are otherwise impacted by economic and property market uncertainty. These assets can also be difficult for the average investor to get exposure to, which is a key benefit of Mayfair 101’s ecosystem that we have worked hard to develop.”

Mayfair 101’s assets mostly comprise over five-year-old companies that operate in the fintech and financial service industries, in sectors and markets that continue to experience significant growth. The group has assets across 11 countries, 10 sectors and 5 currencies, with no listed equity or Australian property holdings.

In 2018 Mayfair 101 launched M12 Global Ltd, a UK-based subsidiary, to fill the USD3 billion of demand its portfolio companies have for extending credit to their customers over the next 5 years. Mayfair 101 is currently structuring a retail bond offering to be issued from M12 Global on the Main Market of the London Stock Exchange to fill this demand, the model for which is largely based on the strategy and success of IPO Wealth.


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